MIGA’s first project in Somalia shows that renewable energy investment can be achieved in challenging environments

The Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group has issued a guarantee of $5.67 million to cover Kube Energy’s equity and debt investments in Kube Energy Somalia LLC for a period of up to 15 years against the risks of expropriation and war and civil disturbance. This is MIGA’s first project in Somalia, which became a MIGA member country in March 2020.

The project, developed by Kube Energy in collaboration with the government of the South West State of Somalia, and financed and further developed in partnership with CrossBoundary Energy, will establish the first hybrid solar power plant in Baidoa, Somalia.

The power plant will have a capacity of approximately 2.8 megawatts of solar PV modules and 4.8 megawatt-hours of battery storage integrated with synchronized generators. The project aims to increase energy access, reduce greenhouse gas emissions, and build clean power generation capacity for the city of Baidoa, an important regional trading hub with a growing population of people displaced due to conflict and drought.

While it will serve a limited number of off-takers initially, including the United Nations, the intention is that the plant will form part of Baidoa’s permanent energy infrastructure and increase access to clean and affordable power for local government, and through a potential future expansion to businesses and residents. The project will also benefit Baidoa’s residents as most of the workforce will be recruited locally for the construction, operations, and maintenance, building local technical capacity and an ecosystem around renewable energy, with ownership of the plant to be transferred to local authorities after 15 years of commercial operations. In addition, the reduction of greenhouse gas emissions will contribute to improving the quality of the environment in a region which is severely affected by climate change.

The Somali energy sector is one of the most underdeveloped in the region, with electrification rates estimated at 35 percent. Much of Somalia’s public electricity infrastructure was destroyed during its internal conflict, with the private sector stepping in to create small energy service providers that are now generating more than 90 percent of the electricity in the country. As a result of in-country limited electricity infrastructure, the UN has relied on its own diesel generators, and is currently one of the largest self-generators of electricity in Somalia, with an installed capacity of approximately 65 MW compared to the total grid-connected installed electricity generation capacity of 138 MW.

By entering into a power purchase agreement with Kube Energy to provide clean energy to its compound in Baidoa, the UN will reduce its environmental impact by cutting its diesel consumption and support the development of local energy infrastructure. The project will help the UN reach its ambitious target of 80 percent renewable energy use by 2030 across all its operations.

“MIGA is eager to support investment into renewable energy infrastructure in fragile markets and contribute to the UN’s efforts to reach its 80 percent energy target in Somalia,” said Hiroshi Matano, Executive Vice President of MIGA. “This first-of-its-kind transaction will serve as a model for other international organizations seeking clean energy at a lower cost, while encouraging energy access for communities and governments.”

This ground-breaking business model demonstrates that renewable energy investment can be achieved even in the most challenging environments. Kube Energy’s model, leveraging creditworthy international organizations to allow investment in renewable energy-based electricity in fragile and conflict-affected countries, has a strong potential for replication. Kube Energy is pursuing similar projects elsewhere in Somalia, the Central African Republic, Mali, and South Sudan.

“This is a landmark deal for Kube Energy and for our partners. By showing it can be done, we have taken a giant step toward unlocking more renewable energy projects in Somalia and other fragile areas,” said Mads Uhlin Hansen, CEO of Kube Energy. “The risks in the places we operate are high, but the scope to have an impact for those that have been most left behind is enormous. MIGA support helps us to overcome some of the risks in these challenging environments.”

“As an investor, the guarantees provided by MIGA are critical. It improves the business environment in underserved markets by providing a certain level of confidence,” said Georgina Wanyaga, Senior Business Development Manager for CrossBoundary Energy. “MIGA’s support demonstrates it is possible to deliver bankable projects in remote or challenging settings, which is crucial when operating in these areas.”

The solar hybrid power plant will lead to significant greenhouse gas emissions savings, as the solar power produced will displace diesel generators which are highly polluting. The project will displace an estimated fuel usage of approximately 1 million liters per year, resulting in avoided greenhouse gas emissions of approximately 2,800 tons of CO2e per year.

The plant is expected to generate an estimated gross electricity production of 4,000 MWh of electricity per year, of which approximately 90 percent would be provided by the solar array. The electricity will be supplied to the UN operation and potentially to other international organizations and government offices and public services, once power purchase agreements are signed. There is potential to expand the capacity of the plant and distribute electricity to communities across the city through a local utility company.

MIGA’s risk exposure under the guarantee will be shared with the IDA Private Sector Window and the Renewable Energy Catalyst Trust Fund (RECTF) via a first loss facility that will assist in spreading the risk and expanding MIGA’s reach in fragile contexts. The RECTF is a multi-donor trust fund managed by MIGA that was set up in 2022 through the support of the Norwegian Agency for Development Cooperation (Norad) and the Government of Japan. This transaction is the second MIGA-guaranteed project to benefit from RECTF support.

About Kube Energy

Kube Energy is a renewable energy company dedicated to bringing clean, affordable, and reliable energy to fragile and hard-to-reach areas. It develops and builds hybrid solar power plants in regions affected by extreme poverty, conflict, and climate change, where access to grid electricity is limited and power is typically expensive and generated from diesel. Kube’s projects reduce emissions, improve energy security, bring down energy costs, and lay the foundation for expanding energy access for local communities.

About CrossBoundary Energy

CrossBoundary Energy is a developer, owner, and operator of distributed renewable energy solutions for businesses across Africa, providing cheaper and cleaner energy through power purchase and lease agreements. CrossBoundary Energy is currently delivering a portfolio of over $220 million of solar renewable energy assets for clients including Unilever, Diageo, Rio Tinto, Heineken, and AB InBev, and was recognized by African Solar Industry Association as “Solar Company of the Year” for 2022. CrossBoundary Energy is a member company of the CrossBoundary Group, a mission-driven investment firm founded in 2011 and committed to unlocking the power of capital for sustainable growth and strong returns in underserved markets.

About MIGA

MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment in emerging economies by helping to mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war and civil disturbance; and offering credit enhancement to private investors and lenders.

Since its creation, MIGA has issued nearly $70 billion in guarantees across 122 developing countries in support of nearly 1,000 projects.